This paper utilizes the baseline Real Business Cycle (RBC) model in order to construct a time recursive approximate optimal decision rule as a linear function of the model's state variables and an exogenous surprise shock that hits the economy. The constructed rule is subsequently used in order...

The authors consider a multivariable system comprising a set of macroeconomic variables as inputs, states and outputs. In this setting the authors assess the control potential of fiscal policy versus a large negative business cycle shock that affects the output of the system. The inputs...